Similarity: A Practical Approach - MT4/MT5 Resources
I was going to post this on EURUSDD's thread, but for some strange reason he has locked it.
Anyway, there's a lot going on there, but one of the greatest things is the principle of similarity. The idea is to find areas of divergence that can serve as price direction targets. Obviously, there's a lot of math behind this. Another thread uses two random settings that are similar 99% of the time so that when they become discordant, an area is marked on the bar.
After doing some research on a slow Friday night, I was reminded of two indicators designed to flag trend weakening and possible reversal. This happens when indicators become inconsistent. Their slopes actually point in opposite directions. They are the standard RSI and the composite index. The composite index was created by Connie Brown to mark areas of weakness when the RSI fails to react and vice versa. For the sake of discussion, I'll call it CI. This formula is in the public domain.
Anyway, I was lucky enough to find a pair that just formed a difference bar. I've also marked another place on this chart that creates an area of difference.
Now let’s talk about the system.
After the DZ forms, we wait for price to move away from it. It needs to move far enough for the price to break above the BB line, and the signal light and zigzag must have formed. The initial clues of similarity were already deep into the theory, so I thought I'd take part of that theory and create a system for everyone to test. The rules are not set in stone. So everyone is welcome to contribute. The idea of this thread is to have clear, concise rules. Of course, coders and testers are welcome.
These metrics are similar 99% of the time, so when they become inconsistent, it's cause for concern. This is the first chart.
Joe
Anyway, there's a lot going on there, but one of the greatest things is the principle of similarity. The idea is to find areas of divergence that can serve as price direction targets. Obviously, there's a lot of math behind this. Another thread uses two random settings that are similar 99% of the time so that when they become discordant, an area is marked on the bar.
After doing some research on a slow Friday night, I was reminded of two indicators designed to flag trend weakening and possible reversal. This happens when indicators become inconsistent. Their slopes actually point in opposite directions. They are the standard RSI and the composite index. The composite index was created by Connie Brown to mark areas of weakness when the RSI fails to react and vice versa. For the sake of discussion, I'll call it CI. This formula is in the public domain.
Anyway, I was lucky enough to find a pair that just formed a difference bar. I've also marked another place on this chart that creates an area of difference.
Now let’s talk about the system.
After the DZ forms, we wait for price to move away from it. It needs to move far enough for the price to break above the BB line, and the signal light and zigzag must have formed. The initial clues of similarity were already deep into the theory, so I thought I'd take part of that theory and create a system for everyone to test. The rules are not set in stone. So everyone is welcome to contribute. The idea of this thread is to have clear, concise rules. Of course, coders and testers are welcome.
These metrics are similar 99% of the time, so when they become inconsistent, it's cause for concern. This is the first chart.
Joe
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